Political Malfeasance in Action

U.S. Senator Kyrsten Sinema (D-AZ) received nearly $1 Million in Wall Street contributions while killing a tax hike on certain Investment Bankers.

I grew up in the 1960’s in Buffalo, NY where it seemed that candidates for election to public office couldn’t get nominated until they could prove their ability to attract illegal political contributions. Over my professional career, I spent significant time in other northeast states, counties and cities where political corruption was often the norm.

Most of the corrupt elected officials I observed were guilty of getting their driveway paved; their house painted; maybe a new roof. Not good, not appropriate, and certainly, not acceptable.

The recent behavior of Sen. Kyrsten Sinema (D-AZ) relative to the Carried Interest federal tax loophole puts the actions and behaviors of these historic elected officials in NY and CT into the category of ‘fixing parking tickets’.

The despicable and nefarious posturing by Sen. Sinema has blessed Carried Interest, sometimes known as ‘the cockroach of tax breaks, allowing it to survive another potential assault by Congress.

The proposal to increase the holding period requirement to qualify certain income paid to investment bankers for the lower Carried Interest tax rate was removed from the landmark ‘Inflation Reduction Act’ of 2022 (H.R. 5376) recently passed by both the Senate and the House and signed into law by President Joe Biden on August 16, 2022.

The “compromise” to remove Carried Interest was demanded by Sen. Kyrsten Sinema (D-AZ) which she justified on a complex and convoluted set of criteria, and which potentially might be related to the $1 Million in campaign contributions she received over the past year from private equity professionals, hedge fund managers and venture capitalists whose taxes would have increased exponentially under the original plan.

The concept of Carried Interest dates back to the 16th century, when ocean-going ship captains would often take a 20 percent “interest” of whatever profits were realized from the cargos they carried. This approach is logical and defensible on the risks to life, property and personal capital undertaken by ship captains.

In 21st century America, the meaning of Carried Interest has evolved to describe a tax loophole — an income tax avoidance scheme — which allows some private equity and hedge fund investment bankers to classify large amounts of their compensation related to performing services (i.e. managing and/or investing other people’s money) as investment gains, which substantially lowers the amount they are required to pay in taxes.

Today’s Carried Interestis essentially a payment (bonus or commission) for investment services that is taken out of the profits of the money managed for investors. Private equity firms use pooled money from large institutional investors (pension funds, college endowments, ultra-high net worth individuals, etc.) to acquire controlling interests in struggling, underperforming or undervalued companies. When the investment are made, these acquired entities agree to pay the private equity firms Carried Interestout of the investment profits on top of management and other fees.

Under our current tax law, when the carried interest income is paid out of the private equity firm to individual partners, directors, etc. it is taxed at the preferential (‘capital gains’) rates granted to investment income, even though the income represents compensation for services. In all other contexts, compensation income – salaries, bonus, commissions, etc. – is taxed everywhere else as ordinary income.

Investment professionals often are required to contribute capital if they are eligible to receive carry, although it varies by firm and by position in the hierarchy (from 23% of associates/senior associates to 71% of managing partners). Essentially, the Carried Interest tax loophole acts as a magic wand to turn ordinary compensation income into preferentially-taxed capital gains income for a few thousand specially entitled individuals each year.

Private Equity (“PE”) is a $4.5 Trillion industry which tends to follow a predictable model: Use very high levels of debt to take control of underperforming (or undervalued) companies and then extract as much value as possible over a short- to intermediate time frame.

One of my favorite movies, “Other People’s Money” (1991: Warner Brothers [directed by Norman Jewison]; starring Danny DeVito and Gregory Peck) almost perfectly illustrates the potentially powerful impact of leveraged debt strategically deployed against a weak management team. In the film, the end result is: (a) closure and liquidation of New England Wire & Cable Company, a boring multi-generational family manufacturing business; (b) the loss of hundreds of decent jobs in a small American city; and (c) millions of dollars of ‘pirated booty’ transferred to anonymous private equity investors, with a mighty fine Carried Interest reward paid to Danny DeVito (the investment banker).

Zero value added to the overall U.S. economy.

Devastating value lost to a small American city, its residents and the regional economy.

Sure, the investment banker (Danny DeVito) took home a fine bonus. He probably was able to buy a nice airplane and maybe a vacation home in the Hamptons.

Meanwhile, the wire and cable products formerly supplied by the now defunct domestic company now are being sourced from a foreign firm. The American city where the former Wire and Cable business was located lost tax revenue which had formerly been used to support local schools and public works. And, local families abruptly lost their incomes, and their homes potentially went into foreclosure.

Most alarming: U.S. taxpayers subsidized the whole mess because of this crazy, foolish and irrational tax break known as Carried Interest.

Some will say that the movie, “Other People’s Money” is a 1991 dinosaur which has no relevance in 2022.

Yet, the devastation continues. In our current environment, retailers are particularly vulnerable to leveraged buyouts, and they provide the most visible examples of companies which have been acquired, pillaged and wrecked by private equity firms.

In January 2020, the New York grocery chain Fairway filed for its second bankruptcy in less than four years and announced plans to sell off its stores, due to several efforts by PE firms to extract value from the franchise. The Fairway failure joins a long list of casualties that includes: Sears; Toys R Us; Payless ShoeSource; and Sports Authority, among many others.

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In theory, PE firms snap up underperforming companies using ‘patient capital’; they bring in professional managers to revamp current operations; and then sell the companies through a Public Offering to generate a healthy return.

In practice, the PE industry revolves around deals known as leveraged buyouts, where the PE investors put up a small amount of their own money to purchase a company and borrow the rest. The acquired business becomes responsible for repaying the debt, which puts an immediate strain on cash flows.

In their quest to generate cash and improve operational efficiency, PE firms often: lay off workers, and cut pay and benefits to remaining workers; they sell off owned real estate and lease back; they sell trademarks and other ‘off balance sheet assets’.

PE firms sometimes extract cash using “dividend recapitalizations” where they use the acquired company to borrow additional money which is then used to pay investors. Beyond that, they often charge the businesses they acquire millions in ‘management fees’.

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Shifting the treatment of so-called Carried Interest income from capital gains to ordinary compensation income could raise between $1.4 Billion and $18 Billion annually from income tax on a very small number of investment bankers.

Most informed Americans refer to the lower tax rate on Carried Interest as a loophole that allows already wealthy private equity, hedge fund and other investment managers to pay a lower tax rate than the majority of their employees and other American workers. Once they are fully informed, a significant majority of voters across the political spectrum support legislation that would close this loophole.

“It’s a real rich benefit for the wealthiest of Americans,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. “Why should a private-equity manager be able to structure his or her compensation with low-taxed gains? That seems wrong.”

Sen. Sinema was elected to the U.S. Senate by voters in Arizona to represent their interests.  It’s hard to see how continuing this awful Carried Interest loophole is in the best interest of anyone in Arizona, other than to Sen Sinema herself because it seems to provide a rich and reliable source of political contributions to help ensure her continued reelection.

And that also seems wrong.

I don’t either.

Ryan, Trump and McConnell: These were our leaders on January 20, 2017: Inauguration Day

Just because you and I don’t remember the 2020 Recession, that doesn’t mean it didn’t happen.

The official arbiter of recessions — the Bureau of Economic Research — says there was one.

When Donald Trump took office in January 2017, he inherited an economy in its 91st month of economic expansion following the end of the Great Recession in June 2009. That expansion continued into 2020, becoming the longest on record, peaking at 128 months in February 2020.

The National Bureau of Economic Research officially recognized the Recession of 2020 as the shortest on record at just 2 months, with the trough of that recession occurring in April 2020.

One milestone which helps to mark the 2020 recession is the price of oil. During the month of April 2020, the price of a barrel of West Texas Intermediate was absolutely erratic, actually closing Negative at (Minus $37/bbl) on April 20, 2020. [Was gasoline free that day? I don’t recall.]

Back to January 20, 2017, Trump’s Presidential Inauguration Day.

Paul Ryan, a Republican from Wisconsin, was serving as Speaker of the House.  Mitch McConnell, a Republican from Kentucky, was the Senate Majority leader.

Ryan was first elected to the House in 1998 at age 28. He developed a reputation as a no-nonsense deficit-hawk fully focused on reducing entitlements and reducing taxes. Ryan had been serving as Speaker of the House since 2015.

The 2017 Tax Cuts and Jobs Act (TCJA) was Paul Ryan’s swan song, eagerly supported by Trump and most congressional Republicans.

Unfortunately, it was exactly the wrong time to enact this complex piece of legislation, primarily because it relied on untested assumptions at a point in time when the U.S. was riding the tail end of the longest economic expansion in history. It created massive increases in our national debt; it favored investment increases in oil and related industries (which to some appeared to be a means to curtail pending increases in oil prices); and exuberant expectations that repatriation of corporate profits parked offshore would be used to create domestic jobs turned into a massive stock buyback across the market.

In early February 2018, Paul Ryan began to reflect on the true consequences of the TCJA. He tweeted, “Julia Ketchum, a secretary at a public high school in Lancaster, Pennsylvania, said she was pleasantly surprised her pay went up $1.50 a week. She didn’t think her pay would go up at all, let alone this soon. That adds up to $78 a year, which she said will more than cover her Costco membership for the year.”

In April 2018, Ryan announced his intention to retire from Congress on January 3, 2019 — the end of his current term — thus ending a 20-year career representing his constituents in Wisconsin — so that he could spend more time with his family.

Left to its own devices, the 2017 TCJA may have created an unchecked economic calamity.

Then came the Covid-19 Pandemic which turned into an unforeseen international societal and economic tragedy – and clearly was the trigger which caused the 2020 recession. Yet, the impacts of Covid didn’t begin to surface until 1st quarter 2020, so there is a 24 month period following the January 2018 introduction of the TCJA which economists are now examining to help create real context around current (mid-2022) economic uncertainties.

Even a neophyte like me can add the 2022 Russian invasion of Ukraine to: (a) the long-term economic damage created by the TCJA; (b) the Covid wild card; and (c) the economic devastation of Trump’s tariffs, particularly on our agriculture sector. When we spread the numbers, we can begin to see an almost perfect recipe created under Trump’s watch sufficient to decimate any economy.

Despite the open hostility and recalcitrance of elected Republicans currently serving in Congress, I must give Joe Biden and the Democrats a 5-Star rating for refusing to capitulate, and for keeping the ball moving forward.

Chair of the Select Committee Rep. Bennie Thompson (D, MS) & Co-Chair Rep. Liz Cheney (R, NV).

Today is June 9, 2022, the first day of a series of public hearings convened by the House Select Committee to Investigate the January 6th Attack on the U.S. Capitol, Chaired by Thompson, with Co-chair Cheney.

They are an Unlikely Duo, truly polar opposites in most ways, yet bound together by at least one common thread: an oath of office where they individually affirmed a solemn promise to “support and defend the Constitution of the United States against all enemies, foreign and domestic…”.

Thompson began his service as a Member of Congress in 1993 representing the 2nd Congressional district of Mississippi.  He is a black male; currently age 74; born, raised and still a resident of Bolton, MS: a small, rural and hard-scrabble town in Hinds County, approximately 20 miles from Jackson, the state capital.

Thompson’s voting record has been solidly ’liberal’. His legislative platform is and has been focused mainly on agriculture and rural issues; civil rights; homeland security; equal education; and health care reform.  He is a founding member of the Congressional Progressive Caucus.

Cheney began her service as a Member of Congress in 2017, representing the Wyoming at-large Congressional district. She is a white female; a lawyer; age 55; 3rd generation Wyoming resident on her mother’s side. Her father, former U.S. VP Dick Cheney, represented WY in Congress for 10 years.

Cheney is known as an “ideological conservative”, and a solid representative of the Republican establishment, noted for her focus on national security; support for the U.S. military; a pro-business stance; hawkish foreign policy views; and fiscal and social conservatism.

Prior to her ‘fall from grace’ for refusing to capitulate to the “stolen election theory”, Cheney chaired the House Republican Conference, the third-highest position in the House Republican leadership.

It seems perfectly clear from watching and listening to this first public hearing jointly moderated by this Unlikely Duo that the January 6th Insurrection is a seditious conspiracy against the Constitution of the United States.

It seems entirely plausible that House Republican leader Kevin McCarthy and Senate Republican leader Mitch McConnell have continued to advance and support blatant political lies — fully disproved by both facts and the courts —aimed to support what has come to be known as the “Big Lie”: an imaginary alternative outcome from the 2020 presidential election.

Are Kevin and Mitch potentially guilty of Sedition themselves, or merely complicit in their disruptive and subversive actions?

Most sad:  Rod Serling could have produced an entire season of The Twilight Zone off the McCarthy/McConnell fabrications.

Dozens of polls and studies reveal general agreement among American adults which favors sensible gun control reform legislation, incorporating a variety of strategies such as:  (a) increased funding for mental health services; (b) universal background checks; (c) a national ‘red flag’ law; (d) training and/or licensing requirements; (e) more consistent rules across state lines.

Each and all of these would likely contribute toward reducing senseless gun violence. Yet, the Root Cause of our present dilemma seems to center around one specific type of firearm, often called “AR-15 style”.

These are high-capacity military-style weapons which can be fired semi-automatically and/or have the capability of being easily transformed into a rapid fire weapon. There is no legitimate purpose for these weapons in a civil society, and the ultimate goal to remove this Root Cause from the equation ought to be a total and complete ban on the civilian purchase, sale or possession of such weapons.

The next critical variable is ammunition. There is no logical or defensible reason to support civilian sale, possession or use of military grade ammunition categorized as: hollow point; full metal jacket; armor piercing; green tip; black tip; or any other sort of ammo which is not used by regular gun owners for target shooting or which is appropriate for legitimate hunting purposes.

As painful as it might seem to Wayne LaPierre, Jason Ouimet and others at the NRA, these AR-15 style weapons and military grade ammunition seem to continually and disproportionally fall into the hands of a few people who have really bad agendas.

If we eliminate the very weapons and ammunition which seem to attract the interest of folks with bad agendas, we will be making some real progress.

Please listen carefully, NRA.

The great majority of us don’t want to take guns away from our neighbors; we don’t harbor animosity toward responsible gun owners; and we often are gun owners and NRA members ourselves.

We do believe there is a balance – a sensible equilibrium — which respects, supports and honors the American tradition for people to keep and bear arms in a manner consistent with a civilized 21st century society.  

Let’s work together to find that balance.

When I was growing up in Buffalo, we learned about current events from regulated media sources, including radio and television broadcasts.  These entities were regulated by the Federal Communications Commission (FCC), an entity which was created by the federal Communications Act of 1934 which combined and organized federal regulation of telephone, telegraph, and radio communications.

One of the critical purposes of the Communications Act pertained to national security, law enforcement, and intelligence activities.

In my household, we also subscribed to morning and evening print newspapers which were privately owned, independently distributed by subscription only, yet still subject to some limited oversight and regulation by the FCC.

The Telecommunications Act of 1966 updated much of the Communications Act of 1934 to encompass technology changes to include broadcast television and cable stations which had not been subject to laws governing the public airwaves.

Today, the FCC regulates interstate and international communications by radio, television, wire, satellite and cable in all 50 states, the District of Columbia and U.S. territories.

The FCC is an independent U.S. government agency overseen by Congress which serves as the primary authority for U.S. communications law, regulation and technological innovation, and it continues to serve as a primary resource for national security, law enforcement, and intelligence activities.

No one could argue that technology has evolved exponentially since 1966, with digital technology transforming the business of news, including profound implications for information dissemination, publishing and operations.

The most dramatic impacts on operating models have been in production and distribution, transforming from a single product to a multi-products array of channels and formats, such as:

  • Desktop, tablet, mobile and watch sites/apps;
  • Channels, including on-platform owned products; and off-platform (email, Facebook, text); and
  • Third party, off-platform (Snapchat, Apple news, Yahoo) formats: Video, interactive graphics, messaging, podcasts, and many more.

This shift in distribution flows through to production, including the shift from a process geared around the “daily miracle” of a print newspaper to a 24/7 digital news cycle and the use of data & analytics to assess performance and make decisions on both content and delivery.

How can it be that the FCC has been unable to adapt to these rapidly evolving technology changes?  The FCC failed us by not identifying, encompassing and including new and emerging means of mass communication delivered on the internet, including such social media platforms as Facebook, YouTube, LinkedIn and Twitter.

Virtually all of the dangers the FCC was intended to protect us from have been incubated and nurtured on the internet, including: (a) promotion and amplification of conspiracy theories; (b) empowerment of fringe groups; (c) foreign influences into American politics; (d) infusion of false narratives into current events; and (f) cyber-attacks on electric-grid and other crucial infrastructure which have been confirmed in the US, the Middle East, Germany, Ukraine and Azerbaijan.

Our national well-being depends not just on our confidence in our government but also on the integrity and reliability of private companies through which we lead our digital lives.

Recently, hundreds of armed, self-proclaimed militiamen converged on Gettysburg after a single Facebook page promoted the fake story that Antifa protesters planned to burn American flags there. Prior to the 2020 Presidential election, e-mails and videos which eventually were attributed to the Iranian government were sent to voters in Arizona, Florida, and Alaska, purporting to be from the Proud Boys urging recipients to “Vote for Trump or we will come after you.”

A physical wall along our southern border with Mexico is a great soundbite, but the 21st Century threats to our national security have little to do with migration of aggrieved and oppressed people who are clawing for survival and self-sufficiency.

The real threats to our national security are from conspiracy theorists; fringe groups; foreign influencers; religious extremists; the infusion of false narratives into current events; and cyber-attacks on infrastructure similar to those which have been confirmed in the US, the Middle East, Germany, Ukraine and Azerbaijan.

Our Congress needs to shift its primary priorities toward critical strategic issues (i.e. regulatory oversight of national security issues), and to put less critical – but still important – issues into a secondary status.

Twitter currently has almost 400 Million users, about half of whom use the platform on a daily basis.

The announcement that Elon Musk will acquire Twitter is a wakeup call to our Congress.

This is no reflection on Elon Musk:  No doubt his intentions are honest and pure.  But:  What if the next entity which steps in to acquire a virtually independent and unregulated key strategic asset in our emerging 21st century communications infrastructure is a foreign entity, perhaps a foreign oligarch?

When will our elected officials draw a line between focusing on false narratives and trivia, and focusing in on critical national security issues?

“The legacy of Mitch McConnell’s obdurate and unwavering positions will haunt us for many decades.”

U.S. District Judge Kathryn Kimball Mizelle struck down the federal mask mandate for airplanes and other modes of public transportation on April 18, 2022, writing that the Centers for Disease Control and Prevention had exceeded its authority and failed to follow proper rulemaking procedures.

Her decision led to U.S. airlines and other transportation hubs to promptly drop their mask mandates.

Judge Mizelle sits on the Federal District Court for the Middle District of Florida. She was nominated by former President Donald Trump in September 2020 at age 33, and confirmed by a 49-to-41 Senate vote later that year.

She graduated from the University of Florida Levin College of Law in 2012; worked at the U.S. Department of Justice and in private practice, and served as a law clerk for several federal judges as well as Supreme Court Justice Clarence Thomas.  She belongs to the conservative Federalist Society, which advocates for an originalist interpretation of the U.S. Constitution.

Following her nomination as a Federal Judge, the ABA Standing Committee on the Federal Judiciary said that a majority of the group had deemed that Mizelle did not meet the requisite minimum standard of experience necessary to perform the responsibilities required by the high office of a federal trial judge.”

Despite the ABA’s recommendation to McConnell and the Senate to reject Mizelle’s nomination, the U.S. Senate confirmed her nomination in November 2020 along partisan lines.

Sarah Palin announces run for Congress

We currently have an excess supply of Wombats, Obstructionists, and probable Seditionists serving in Congress.

Some of these characters include: Marjorie Taylor Greene of Georgia; Jim Jordan of Ohio; Lauren Boebert of Colorado; Matt Gaetz of Florida; Madison Cawthorne of North Carolina; Louie Gohmert of Texas; Paul Gosar of Arizona; and several more.

These are folks who were nominated by their Party and encouraged to run for public office; and who were then elected to represent their constituents in Congress.

These also are the same folks who live large in public media, seemingly hell-bent on destroying the foundations of the American political system and American political values.

We recently learned of the death of Don Young of Alaska, a highly respected and the longest-serving Republican in the history of the U.S. House of Representatives.

A special election to fill his vacant seat will be held August 16, and the winner of the special election will finish the remainder of Young’s term, which ends in January 2023.

Former Alaska Governor Sarah Palin has announced her intention to run for Congress to replace Don Young.

In her announcement, Palin said our nation “is at a tipping point,” and she spoke of the need to address “out-of-control inflation, empty shelves, and gas prices that are among the highest in the world.”

“I’m in this race to win it and join the fight for freedom alongside other patriots willing to sacrifice all to save our country,” Palin said.

Sarah certainly knows the right words to say; she only lacks the knowledge and abilities to deliver on whatever promises she intends to make.

We’ve seen enough of Sarah Palin’s wisdom, experience and character from her run as the VP candidate under John McCain in the 2008 presidential election.

We certainly don’t need Sarah Palin in Congress to further degrade and destroy the foundations of our American political system and political values.

Is Sen. Hawley a danger to our democracy?

Josh Hawley, the junior senator from Missouri, was mostly unknown until he joined a few other newsworthy seditionists to attempt to deny certification of Joe Biden’s election on January 6, 2021.

Hawley became a poster boy for the cause, caught on camera fist-pumping outside the Capitol just prior to the insurrection. 

Sen. Josh Hawley at the Capitol, January 6, 2021

His re-election campaign now uses this photo to embellish a number of trinkets available on his website – for example, a coffee mug is available for just $20.00.

Hawley graduated from a private Jesuit high school where he was valedictorian; is a graduate of Stanford; and of Yale Law School where he was an editor of the Yale Law Journal and also served as president of the Yale Federalist Society chapter. Prior to his election to the Senate in 2018, he held a number of positions, including a stint as an associate professor at the University of Missouri Law School, where he taught constitutional law.

But, please don’t be fooled by his pedigree, boyish good looks or his melodious baritone delivery.

Hawley clearly has a penchant for disloyalty and rebellious activities focused on undermining the workings of the United States government.

And, his recent performance interrogating Supreme Court nominee Judge Ketanji Brown Jackson has given new meaning to the phrase “badgering the witness.”

During my college years, I was introduced to the writings of Franz Kafka; that may help explain my rather bizarre sense of humor.

Day by day, week by week: The behaviors of many of these elected officials devolves toward the bottom, the base, the nadir.

Today’s massacre in El Paso contains some common elements to dozens of similar occurrences.

Who are these killers?

The statistics tell us that they are most likely to be U.S. born while males, generally under 30 years of age.

A number of studies have shown that the male brain reaches maturity significantly later than females. The key brain region believed to be primarily responsible for reasoning and helping us to ‘think before we act’ is the pre-frontal cortex, which develops later in males, and is generally still changing and maturing well into adulthood.

What sort of weapons do these mass killers prefer?

Military-style assault weapons with high-capacity magazines.

What should we do right now to put a halt to these massacres?

Institute an immediate ban on the production, sale or civilian possession of military-style assault weapons in the U.S.

AR-15 (AK-47 and similar weapons) have no place in a civil society, except perhaps for military and limited law enforcement use.

Is there a precedent to this “call to action” at the federal level?

Yes, there is.  The Public Safety Recreational Firearms Use Protection Act (1994) prohibited the manufacture, transfer, or possession of “semiautomatic assault weapons” as well as “large capacity ammunition feeding devices” — defined as “any magazine, belt, drum, feed strip, or similar device” which had “the capacity of, or that can be readily restored or converted to accept, more than 10 rounds of ammunition”.

That legislation passed in September 1994 with a sunset provision for the assault weapon ban section. The law expired on September 13, 2004, and nothing has occurred at the federal level over the past 15 years to reign in the proliferation of civilian ownership of assault weapons, military grade ammunition and high capacity magazines.

I refuse to stand by and wait for someone to go hunting with an AR-15 at the school which my grandchildren attend, at the mall where my family shops, or at the house of worship in my neighborhood.

Please join me:  Step up and demand common sense gun regulations from your elected officials.

Now!